David Goldman for The New York TimesJon S. Corzine, center, chief executive of MF Global, on the firm’s trading floor.There is little MF Global and Netflix have in common, except for the fact that the stocks of both companies plunged on Tuesday after a spate of bad news.
Shares in MF Global plummeted more than 47 percent after both a credit rating downgrade by Moody’s Investors Service and its third-quarter earnings came in below analyst estimates. Tuesday’s market bloodbath left the firm with just $305.1 million in market value.
The rout is only a sign that MF Global’s chief executive, Jon S. Corzine, has an increasingly difficult mission: turn the brokerage firm around and build it into a formidable investment bank. Mr. Corzine, the former Goldman Sachs chief executive and former governor of New Jersey, must now contend with worries that MF Global is overexposed to European sovereign debt and has struggled to meet earnings expectations.
Thanks to Moody’s downgrade, announced late on Monday, MF Global now carries a a Baa3 rating, one level above junk status. In its announcement, Moody’s said that the firm was unlikely to meet the financial targets necessary to maintain a Baa2 rating. The ratings agency added that it was increasingly concerned about the firm’s risk management.
“MF Global’s increased exposure to European sovereign debt in peripheral countries and its need to inject capital into its broker-dealer subsidiary to rectify a regulatory capital shortfall highlights the firm’s increased risk appetite and raises questions about the firm’s risk governance,” Al Bush, a Moody’s senior analyst, said in a statement.
Should Mr. Corzine decide that the task of turning around MF Global is too much to handle, his departure could leave the firm in an even more difficult financial position. Thanks to a “key man” provision in a $325 million bond offering made this summer, MF Global would have to pay an additional percentage point on the notes. The clause becomes active if Mr. Corzine were to leave before July 1, 2013, to join the Obama administration.
That may not mean much in terms of additional interest payments, but it reflects how closely tied MF Global has woven its well-being to Mr. Corzine’s tenure. (For his part, Mr. Corzine has said that he does not plan to leave the firm anytime soon.)
Meanwhile, Netflix has had a more public disaster. After the stock market closed on Monday, the Internet video giant said that it had lost nearly 800,000 subscribers in its third quarter, thanks to a controversial — and now scrapped — plan to separate its DVDs-by-mail and online streaming businesses.
The sell-off began post-market on Monday and continued throughout Tuesday, with the stock’s 35 percent slide erasing more than $2 billion in market value.
Not every investor thinks that Netflix’s stock will fall much further. Whitney Tilson, the managing partner of T2 Partners, who had long bet against the company’s shares, told Heard on the Street on Tuesday that he now held a long position in the stock.
“The core of our short thesis was always Netflix’s high valuation,” he told Heard on the Street in an e-mail. “In light of the stock’s collapse, we now think it’s cheap and today established a small long position.”